AIA offers 6.99% per annum for shop house loan

Posted on | April 4, 2007

By THE EDGE

American International Assurance Company Ltd (AIA) launched its first ever fixed rate loan for the financing of shop houses, with a rate of 6.99% per annum for the entire loan duration.

AIA said on April 4 that the shop house loan was for the purchase and refinancing of completed shop houses in selected prime areas of the Klang Valley and Selangor.

The maximum loan tenure is up to 20 years and this package was available for individual Malaysian citizens and business entities, it added.

“This fixed rate package is great news for those who wish to safeguard their investments against interest rate fluctuations. By having a fixed monthly instalment, any increase in the base lending rate will have a lesser impact on their cost of operating and rental returns,” AIA said.

AIA Malaysia senior vice president and general manager Khor Hock Seng believed that this new package would create a different buzz to the shop houses market.

“At the moment, whenever there is an increase to the interest rates, owners of shop houses will be adversely affected as this would mean a higher loan instalment to pay for their shop house,” he said.

“This will therefore add on to the cost of operations and lessen their profit margin. For other investors who have rented out their shop houses to generate passive income, our fixed rate would help ensure their rental income would not be affected,” Khor said.

He said while residential properties have a wider range of prices, a shop house in Klang Valley would easily cost anything between RM700,000 and RM1.5 million. Thus, even a slight increase in the interest rate would be a significant add-on to your costs,” he said.

For example, for a shop loan of RM800,000, an increase in the BLR to 6.75% from 6% as witnessed last year would mean approximately RM80,000 extra for a person to pay, if he took a 20-year loan, he pointed out.

Khor said in addition to their unique fixed rate features, AIA Shop Loans also offers flexibility in making additional payments.

With its daily interest calculation, additional payments can be made in any amounts, and the sum would go directly towards reducing the loan principal – hence a lesser portion of the monthly instalment will go towards servicing the interest, he said.

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